Stock Market For Beginners
Stock Market Success For Beginners
Many people are interested in investing in the stock market. In many cases, it’s because they have heard from some people who have made a lot of money investing in various financial instruments. While there’s nothing inherently wrong with wanting to invest in the stock market, there’s at least one basic precaution to take before acting on your interest: know your knowledge level. Don’t kid yourself, it does take some time and effort to learn enough about the stock market to be making money. To be really blunt, there’s no quick way to become an expert in any field, and there’s no reason why it should be any different with the stock market.
What I mean by that is, if you don’t know much about the stock market, please don’t expect to get a crash course and be making money hand over fist in just a few weeks. Stop, take a deep breath, and start looking for information that specifically says stock market for beginners. It doesn’t really matter how you go about it. There are free websites that will give you all the information you need. You can also buy e-books about the stock market. Online bookstores will also give you good reference books that you can use as a starting point. And don’t forget your local library!
Stock Market Basics
Of course, if you’re planning to invest in the stock market, you should start by knowing what exactly the stock market is. Simply put, the stock market is where shares of publicly traded companies are bought and sold. A publicly traded company, or public company, is one that has satisfied a certain set of criteria that allow it to sell its shares to the public. On the opposite side of the spectrum is the private companies, whose shares are available to the public.
Buying a share (or more) makes you a part owner of the company, and entitles you to some return on your investment as long as the company is profitable. As a rule, the more profitable the company is (or is expected to be), the more expensive its stock will be. In fact, there’s a lot more that goes into a company’s stock price at a given moment, but we’ll keep it simple and go with current or expected profits as the main driver of stock prices.
How To Buy And Sell Stock
In order to trade on the stock market, you have to have a brokerage account. There are a lot of companies that offer brokerage accounts, and they usually belong to one of two categories: full-service brokers, and discount brokers.
Full Service Brokers
A full service broker is one that provides a large variety of services to its clients, including research and advice, retirement planning, tax tips, and much more. Of course, this all comes at a price, and commissions at full-service brokerages are much higher than those at discount brokers. They can be extremely useful for their expertise: they do more than just place trades. They can provide valuable expertise for people who don’t have the time to stay up-to-date on complicated issues such as tax or estate planning.
Opening an account with a full-service broker is quite an involved process, because he/she will want to sit down with you and your spouse or partner and go over your financial situation in detail: debt, available cash, assets, retirement plans, insurance, kids, and so on. This is required for them to know if they’re going to give you personalized recommendations.
However, if you’re just looking to execute trades and have no need for those extra services, discount brokers are the ways to go.
Discount Brokers
A discount broker is one who carries out buy and sell orders at a reduced commission compared to a full-service broker, but provides no investment advice. With the advent of the internet, there has been an explosion of online discount brokers that allow you to trade with lower fees. The downside is that discount brokers don’t offer any kind of advice. Nevertheless, thanks to them, almost anybody can afford to invest in the stock market. If you do your own research or don’t have a lot of money to put in the market, a discount broker is an excellent way to invest.
Since discount brokers don’t offer advice, opening accounts with them is far less personal. All you have to do is fill out a few forms and you’re set. You’re essentially on your own when it comes to determining if such and such investment is right for you, although some “advanced” types of investments will require that you show that you’re a knowledgeable investor, able to understand the risks associated with said products.
Success In The Stock Market
Many people approach stock market investing the wrong way; that is, they come in and expect to consistently beat the market and reap huge amounts of money as a result. The reality is that few people succeed with this approach. We’re not talking about people who don’t know much about the ins and outs of the stock market either: many of those failures are highly educated. The simple truth is that, in the short term, the stock market is simply unpredictable. There’s no way to know in what direction it will go on a given day. What is true, though, is that it goes up over time, and all the investing greats (Warren Buffet, Peter Lynch, just to name those two) have advocated taking a long term view and diversifying your portfolio.
Taking a long term view simply means that while on a year to year basis, you can’t really tell how your investments will fare, history suggests that the longer you hold your stocks, the higher the likelihood for you to enjoy positive returns on your investment, provided that you invested in good, stable, and profitable companies. Over short periods of time, your returns might be all over the place, but as time goes on, you will be seeing positive results
As for diversifying, it’s just common sense. It’s not recommended that you hold stocks from one specific company or industry. If you go that route and things go bad, then you stand to lose all your money and won’t have anything to fall back on. On the other hand, if you spread your investments over several different companies across different industries, then there’s a good chance your losses in one area may be offset by gains in another area.
Making money in the stock market is not impossible, even for beginners. But please understand that you will need to get educated about the stock market and give yourself time to understand it well before you can really be ready to make money. And as a final word of caution, even when you feel you know enough and are ready to trade, give yourself another two to three months where you trade with fictitious money, just to see how well you do. Unless your good decisions outweigh your bad ones, don’t invest real money just yet.
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